--- url: https://thresholds.pages.dev/fsa/carryover-vs-grace-period/ title: "FSA Carryover vs Grace Period: One or the Other" updated: 2026-09-07 site: Thresholds sources: - https://www.irs.gov/irb/2013-47_IRB - https://www.irs.gov/irb/2005-23_IRB - https://www.govinfo.gov/content/pkg/FR-2007-08-06/html/E7-14827.htm - https://www.irs.gov/publications/p969 --- # FSA Carryover vs Grace Period: One or the Other A health FSA may offer a carryover or a grace period, never both. A carryover moves money forward; a grace period buys time to incur new expenses. A health FSA may offer a carryover or a grace period, never both, and many plans offer neither. A carryover moves unused money into the next plan year. A grace period extends the time to incur new expenses. The [FSA deadline calculator](/fsa/#fsa-o) asks which of the three your plan uses, because the answer changes the date and the amount at risk. Your plan document, not you, makes the choice. ## The rule that forces the choice A plan may offer a carryover or a grace period — not both. Notice 2013-71 states it in one line: "A plan adopting this carryover provision is not permitted to also provide a grace period with respect to health FSAs." The notice goes further and fixes which year is blocked. "If, pursuant to the carryover provision, a plan permits amounts that were unused in a plan year to be carried over to the following plan year, the plan is not permitted to provide for a grace period that occurs in that following plan year." | | Carryover | Grace period | |---|---|---| | What it moves | Up to $680 of unused money, for a plan year beginning in 2026 | Nothing; it moves the deadline | | What it buys you | A full extra plan year to spend that money | Extra time to incur new expenses | | Maximum | $680 | 2½ months — the 15th day of the 3rd month after the plan year ends | | Money above the maximum | Forfeited at the plan year end | Forfeited when the grace period ends | | Set by | Your plan, which may set less or none | Your plan, which may set a shorter period | ## What a grace period does Prop. Treas. Reg. §1.125-1(e)(1) allows "a grace period of up to the fifteenth day of the third month immediately following the end of each plan year." For a December 31 plan year that is March 15 for a December 31 plan year. The regulation describes the effect plainly: the employee "may have as long as 14 months and 15 days (that is, the 12 months in the current cafeteria plan year plus the grace period) to use the benefits or contributions for a plan year before those amounts are forfeited." Three limits ride along with it. The plan may end the grace period earlier than the IRS maximum. The plan may cap how much unused money is available during the grace period, provided the cap is uniform and is not a percentage of each person's leftover balance. And the money keeps its identity: Notice 2005-42 states that "unused amounts elected to pay or reimburse medical expenses in a health flexible spending arrangement (FSA) may not be used to pay or reimburse dependent care or other expenses incurred during the grace period." Anything still unused when the grace period closes is forfeited. Publication 969 puts the consequence in one sentence: "Your employer isn't permitted to refund any part of the balance to you." ## What a carryover does A carryover moves money, not a deadline. For a plan year beginning in 2026 the maximum is $680, which is 20% of the $3,400 salary-reduction limit. Your employer may set a lower figure or offer no carryover at all. Carried-over money is spendable across the whole following plan year, not for two and a half months. It also sits outside next year's election: Notice 2013-71 confirms that "the carryover of up to $500 does not count against or otherwise affect the indexed $2,500 salary reduction limit applicable to each plan year." Those two figures are the amounts as the notice was written in 2013; both are indexed, and the current pair is on the [health FSA limits page](/fsa/limits/). Timing matters for the amount. The carryover is measured from what is unused "after medical expenses have been reimbursed at the end of the plan's run-out period for the plan year", so late claims for last year's expenses shrink the carryover before it moves. ## The weekend question The maximum grace date is a plan-document date. No IRS rule pushes it to the next business day when it lands on a weekend. March 15, 2026 fell on a Sunday; March 15, 2027 is a Monday. Administrators and card networks do not all behave the same way on a weekend cut-off. Where the date falls on a Saturday or Sunday, the administrator's own cut-off is the fact to check. ## Can my employer offer both a carryover and a grace period? No. A plan may offer a carryover or a grace period — not both, and Notice 2013-71 blocks a grace period in the plan year that receives a carryover. A plan may also offer neither, in which case unused money is forfeited at the plan year end. ## Which is better, a carryover or a grace period? Neither is yours to choose; the plan document decides. The arithmetic differs: a carryover protects a capped amount for twelve months, while a grace period protects the entire balance for 2½ months — the 15th day of the 3rd month after the plan year ends, so a large leftover balance survives further under a grace period and a small one survives longer under a carryover. ## When does my FSA grace period end? At the date your plan names, no later than the fifteenth day of the third month after the plan year ends. For a December 31 plan year the outer limit is March 15 for a December 31 plan year, and a plan may set a shorter period. ## How much can carry over from a 2026 plan year? Up to $680 of what remains unused, if your plan offers a carryover at all. The figure is a maximum, and Notice 2013-71 lets a plan "specify a lower amount as the permissible maximum". ## Does a carryover reduce what I can elect next year? No. The carryover is separate from the salary-reduction limit, which is $3,400 for a plan year beginning in 2026. Money that carries over is added to whatever you elect. ## What happens if my plan has neither? Unused money is forfeited when the plan year ends. The claim-submission deadline still applies to expenses incurred before that date, which is what the [run-out period](/fsa/run-out-period/) covers. ## Does the grace period apply to a dependent care FSA? Yes, where the plan provides one. Prop. Treas. Reg. §1.125-1(e)(1) names dependent care assistance among the benefits a grace period can cover, while the carryover option in Notice 2013-71 is limited to health FSAs. ## Figures on this page - A plan may offer a carryover or a grace period — not both — A health FSA may offer either a carryover or a grace period, never both. (IRS Notice 2013-71; verified 2026-09-06) - $680 — Maximum health FSA carryover into the following plan year for plan years beginning in 2026 — 20 % of the salary-reduction limit. (Rev. Proc. 2025-32; verified 2026-09-06; applies 2026-01-01 to 2026-12-31) - 2½ months — the 15th day of the 3rd month after the plan year ends — The maximum grace period a cafeteria plan may offer; a December 31 plan year gives March 15. (IRS Notice 2005-42 / Prop. Treas. Reg. §1.125-1(e); verified 2026-09-06) - March 15 for a December 31 plan year — The latest a grace period may run for a calendar-year health FSA. (IRS Notice 2005-42; verified 2026-09-06) - $3,400 — Health FSA salary-reduction limit for plan years beginning on or after 2026-01-01. (Rev. Proc. 2025-32 (issued 2025-10-09); verified 2026-09-06; applies 2026-01-01 to 2026-12-31) ## Sources - [IRS Notice 2013-71, Internal Revenue Bulletin 2013-47 (health FSA carryover)](https://www.irs.gov/irb/2013-47_IRB) - [IRS Notice 2005-42, Internal Revenue Bulletin 2005-23 (grace period)](https://www.irs.gov/irb/2005-23_IRB) - [Prop. Treas. Reg. §1.125-1(e) — proposed section 125 regulations, Federal Register, August 6, 2007](https://www.govinfo.gov/content/pkg/FR-2007-08-06/html/E7-14827.htm) - [IRS Publication 969 — Health Savings Accounts and Other Tax-Favored Health Plans](https://www.irs.gov/publications/p969) --- Information, not advice. Figures verified 2026-09-07. https://thresholds.pages.dev/fsa/carryover-vs-grace-period/